Inflows of Capital to Developing Countries in the 1990s

Half a decade has passed since the resurgence of international capital flows to many developing countries and history has, once again, shown that foreign investment is prone to repeated booms and busts. Mexico's 1994 crisis is but a recent example that highlights the vulnerability of capital-importing countries to abrupt reversals; thus, an aim of policy is to reduce that vulnerability. This paper discusses the principal causes, facts, and policies that have characterized capital inflows to Asia and Latin America. In particular, the authors examine what policies have proved useful in protecting these economies from the vagaries of international capital flow.